GBP to USD Forecasts: Bears Target $1.2350 on Recession Risks

It is a relatively quiet Wednesday session for the GBP/USD. UK house price figures for May will be in focus this morning. However, barring a larger-than-expected slide in house prices, the figures should have a limited impact on the GBP/USD.

Market sentiment toward the Bank of England’s monetary policy and the UK economic outlook remain the focal points. Sticky inflation has left the UK at risk of a recession should the Bank of England continue to hike rates to combat wage growth and inflation.

With no economic indicators for investors to consider, Bank of England commentary would move the dial. However, no Monetary Policy Committee members are on the calendar to speak today, leaving chatter with the media to influence.

Earlier this morning, trade data from China set the tone. China’s USD trade surplus narrowed from $90.21 billion to $65.81 billion in May versus a forecasted $71.60 billion. Significantly, exports tumbled by 7.5% year-over-year, with imports down by 4.5%. Economists forecast exports to rise by 8.0% and imports to fall by 8.0%.

GBP to USD Price Action

This morning, the GBP/USD was down 0.04% to $1.24189. A mixed start to the day saw the GBP/USD rise to an early high of $1.24381 before falling to a low of $1.24170.

Technical Indicators

Resistance & Support Levels

The Pound needs to move through the $1.2425 pivot to target the First Major Resistance Level (R1) at $1.2458 and the Tuesday high of $1.24586. A move through the morning high of $1.24381 would signal an extended breakout session. However, the Pound would need market risk sentiment to support a breakout session.

In the event of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.2492 and resistance at $1.25. The Third Major Resistance Level sits at $1.2559.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2391 in play. However, barring a risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.2350. The Second Major Support Level (S2) at $1.2358 should limit the downside. The Third Major Support Level (S3) sits at $1.2290.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The GBP/USD sat below the 50-day EMA, currently at $1.24275. The 50-day EMA pulled back from the 200-day EMA, with the 100-day EMA converging on the 200-day EMA, delivering bearish signals.

A move through the 50-day EMA ($1.24275) would support a breakout from the 200-day ($1.24348) and 100-day ($1.24353) EMAs to target R1 ($1.2458). However, failure to move through the 50-day EMA ($1.24275) would leave S1 ($1.2391) in view. A move through the 50-day EMA would send a bullish signal.

The US Session

It is another quiet US session. US trade data will need consideration early in the session. However, barring a sharp widening in the trade deficit, the numbers should have a limited impact on the GBP/USD.

While the economic calendar is light, no FOMC members are speaking today. The Fed entered the blackout period that ends on June 15.

According to the CME FedWatch Tool, the probability of a 25-basis point June interest rate hike slipped from 24.1% to 19.4% on Tuesday versus 66.6% one week earlier.